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“The economy is people. And that is why it grows from the middle-out...the more people you fully include in the economy, the faster and more prosperous, and more inclusive it grows.” David Goldstein, co-host of Pitchfork Economics  

“The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.” Nick Hanauer, a wealthy venture capitalist and host of podcast Pitchfork Economics.  

Since 1980 our economy has been dominated by the “trickle down” theory advocated by Ronald Reagan. Trickle down economists argue that the wealthy, who have money, invest in businesses and grow the economy. They are the “job creators.” So cutting taxes on the wealthy and businesses, getting rid of “regulations,” keeping wages low and killing unions will expand the economy and be good for everyone.   Today many economists regard this as economic snake oil.

It was based on flawed economic thinking and it did not work as predicted. Giving tax breaks to the very wealthy did not result in more private investment, more jobs, better wages and more prosperity for everyone. What happened was the wealthy paid less in taxes and got richer. In addition, necessary public investments were cut and the federal budget deficit increased dramatically.  

Michael Tomasky is a journalist who has written about the economy. He says, “the central economic fact of the last 40 years, is a massive transfer of wealth from the middle to the top...[this has] been very harmful, and based on lies. Based on things that just aren’t true.”  

There is an better, more accurate, explanation of how the economy works. The advocates for “bottom-up middle-out” say the primary cause of growth and expanding prosperity is a thriving middle class. When more people are included in the economy – as employees, small business owners and consumers – everyone does better. When working people have money they spend it. This creates more demand for goods and services which causes businesses to invest and hire. When the middle class does well, everybody does well.  

Nick Hanauer has written, “...if you grow an economy from the bottom up and the middle out and you have very strong demand from the vast majority of the population, because newsflash, the top 1% is comprised by only 1%. So if the vast majority are doing well, not only is that going to continually boost growth through consumption...this is the 70% consumer spending economy, but it’s going to signal to investors that it’s a good climate to invest in because consumer spending is strong, the broad middle class is strong.”   So public economic policy should be promoting the well being of the majority of people – the middle class –  instead of the “investor class.”

Government does this by investing in “public goods” that support and grow the middle class. Education is the most important public good for fueling the economy. Ensuring people have high quality K-12 public schools and affordable access to technical training, community  college or university education is essential to a strong economy. Other public goods such as universal health care, affordable child care, public transportation and affordable housing are also important. Government requirements for  fairness and inclusion are essential. These include fair employment laws, equal opportunity, civil rights, reproductive rights, marriage equality, pay equity, livable minimum wages, antitrust enforcement and fair trade laws. These public polices build an inclusive economy.

The economist Daron  Acemoglu and political scientist James A. Robinson have written about inclusive vs extractive economies (Why Nations Fail: The Origins of Power, Prosperity and Poverty). They say, “Nations thrive when they develop 'inclusive' political and economic institutions, and they fail when those institutions become “extractive” and concentrate power and opportunity in the hands of only a few.” In our country trickle down economics has produced the greatest income inequality and the most “extractive” economy since the Age of the Robber Barons in the 1890s.   

A recent RAND Corporation (a conservative leaning policy and military think tank) study documented how “extractive” our economy has been under Reaganomics. The study concluded that if the “more equitable income distribution” between 1945 and 1974 had held steady through 2020, Americans earning below the 90 percentile would have had a cumulative $50 trillion dollars more income. This would have doubled median income and paid “every single working American in the bottom [90%] an additional $1,144 a month. Every month. Every single year” (RAND Corporation, “Trends in Income From 1975 to 2018, Carter C. Price, Kathryn A. Edwards, September 14, 2020).  

Nick Hanauer wrote in Time magazine, “Reaganomics hasn’t just failed to improve the lives of most Americans. On all three of its core trickle-down tenets – on wages, deregulation, and taxes – it’s theoretical assertions have proven to be flat out wrong....there is no empirical evidence to support the claim that cutting top tax rates stimulates economic growth.”  

Nick continues, “President Biden’s economic policies mark a paradigm shift away from the trickle-down economics...Bidenomics recognizes that a strong and inclusive economy grows from the middle class outwards, centering working Americans and their families rather than relying on a top-down approach that benefits the wealthy...” 

He points to provisions of the  American Rescue Plan, the Bipartisan Infrastructure Law, the CHIPS and Science Act and the Inflation Reduction Act  as implementing this economic philosophy (“Bidenomics Is Real Economics,” Time Magazine, December 8, 2023).  

Economists have documented that the economy does better under Democratic vs Republican  administrations. This is true using any metric – job growth, wage growth, productivity growth, GDP growth or stock market returns (“Presidents and the US Economy: An Econometric Exploration,” American Economic Review, Alan S. Blinder and Mark W. Watson, April 2016)  

Of course American voters don't know this and polls indicate people think the economy is doing poorly under Biden. Overall this is not true. The standard metrics show the economy is improving. But how one perceives the economy depends on what is happening to them (or what they hear on Fox News).  

Biden has been trying to build the middle class. He has implemented public infrastructure repairs and promoted green energy to create jobs. He has taken action to control drug costs and increased funding for programs that help people.  

Reelecting Biden provides hope that these improvements will continue. The alternative offers no hope and will be a return to the failed trickle-down agenda of the past.